The UK government has amended guidance to local government pension schemes (LGPS) to remove a reference to boycotts and divestment from foreign nations being “inappropriate”, although it plans to appeal the High Court judgement that is likely to have prompted the change.

The guidance used to state that “using pension policies to pursue boycotts, divestment and sanctions against foreign nations and UK defence industries are inappropriate other than where formal legal sanctions, embargoes and restrictions have been put in place by the Government”.

This no longer features in updated guidance that was published yesterday.

The amendment comes after a High Court last month ruled that the guidance was “unlawful”.

The government is planning to appeal the judgement, according to Lord Bourne of Aberystwyth, parliamentary under-secretary for Communities and Local Government.

Replying to a question from Baroness Tonge, an independent member of the House of Lords, Lord Bourne wrote: “The Government is strongly opposed to boycotts, which undermine its work to support the peace process and achieve a negotiated solution.

“We have received permission to appeal the judgement on the guidance to administering authorities on preparing an investment strategy statement for Local Government Pension Scheme funds, and will submit an appeal shortly.”

He said the government would amend the guidance pending the outcome of the appeal, but this has already been done.

Ralph McClelland, a lawyer at Sackers, said he would have expected the government to amend the guidance given the judgement.

“I’m not particularly surprised they’ve done that and I think it’s appropriate as well,” he said.

The guidance, from the Department for Communities and Local Government (DCLG), is on how the LGPS should prepare and maintain an investment strategy statement, which the schemes’ administering authorities are required to formulate and must be in accordance with the guidance issued by the minister in charge.

The statement relating to boycotts and divestment was included in the guidance in relation to the requirement that the strategy statement set out how “social, environmental or corporate governance considerations are taken into account in the selection, non-selection, retention and realisation of investments”.

Fergus Moffatt, head of public policy at the UK Sustainable Investment and Finance Association (UKSIF), said: “We have argued since DCLG first consulted on this that LGPS funds should be taking financially material factors into account and that the appropriate tests for taking non-financial factors into account were set out by the Law Commission in 2014, namely that scheme members share the concern and that there is no risk of significant financial detriment to the fund.

“The inclusion of rules requiring schemes to invest in line with government foreign and defence policy was arbitrary and in conflict with this clear guidance.”

He said UKSIF welcomed the decision to remove this aspect of the rules, “at least until the conclusion of any potential appeal by the government”.

The case against the government was brought by the Palestine Solidarity Campaign, which said the power was introduced “specifically to curtail divestment campaigns against Israeli and international firms implicated in Israel’s violations of international law, as well as to protect the UK defence industry”.

A DCLG spokesperson said: “Current local government pension scheme investment guidance has now been amended to reflect the High Court  judgment regarding boycotting and divestment and sanctions against foreign nations. The government is appealing the court’s decision.”